Shipbuilder Austal Limited (ASX: ASB) is promising more growth in the current financial year even after reporting robust double-digit earnings and revenue growth in FY19.
The question is whether the news will float Austal's boat even though you'd be hard pressed to find another S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stock that is confident of upping their earnings in the face of an uncertain global environment.
The issue is that the Austal share price is laden with expectation after the stock more than doubled in value over the past year when the top 200 stock benchmark is barely 3% in the black.
Earnings sailed ahead of expectations
The saving grace is that the group's 64% surge in net profit to $61.4 million, which equates to 17.6 cents per share, is well ahead of consensus forecasts recorded by Reuters of 16 cents a share, while group revenue growth of 33% to a record $1.85 billion was only a tat under expectations.
The bottom-line beat will take some of the pressure off management to meet lofty expectations with brokers polled on Reuters pencilling in earnings per share (EPS) growth of around 25% for FY20.
While management isn't giving guidance on net profit, it believes that earnings before interest and tax (EBIT) will be no less than $105 million compared to FY19's $92.8 million figure and revenue will be at least $1.9 billion compared to consensus expectations of a little over $2 billion.
Can Austal meet the high FY20 watermark?
I think there's a good chance Austal can meet the market given its $4.9 billion order book (a $1.9 billion increase over last year) and the fact that its business is relatively resilient to an economic slowdown.
The biggest contributor to earnings is its US shipyard, which is building a number of military vessels for the US Navy. That business is performing ahead of expectations.
The group also builds ferries and other commercial vessels at its Australasian facilities and this part of the business returned to profitability in FY19.
What's more, Austal believes the Australasia segment will grow revenue by around 25% this year with the potential for further margin improvement.
Other promising signs
Speaking of which, EBIT margin for FY19 expanded (EBIT growth increased 46% vs. revenue growth of 33%) at a time when most other companies are struggling against rising costs.
Not only does Austal provide top- and bottom-line growth potential in FY20, there's scope for its margins to improve further as well.
Throw in its strong balance sheet that holds net cash of $150.7 million compared to $33.9 million in FY18, and its reasonably attractive FY20 consensus price-earnings multiple of around 18.5 times and that leads me to believe there's more room for the stock to outperform in 2020.
